Thursday, November 20, 2008

Obama's kind of folks take the lion's share of blame for the subprime and the general, worldwide economic collarpse

UPDATING 11-24-2008 see at bottom

Obama's friends among "liberal" politicians, directors at Fannie Mae and Freddie Mac, and the Clinton Administration, bear the lion's share of guilt for the subprime mortgage collapse that led to the general worldwide economic collapse. Nevertheless, let's not exonerate Bush Jr and Hank Paulson, his Treasury secretary, for their neglect of problems that were evident two years ago. But Obama consulted with Franklin Raines and got big contributions from Raines' Fannie Mae, while Rahm ["Kapo"] Emanuel was a director at one of the two Federal-govt sponsored lenders and dealers in subprime mortgages, not to mention Jim Johnson, formerly of Lehman Bros who was asked by Obama to sit on his vice-presidential candidate selection committee, along with Caroline Kennedy of the super-rich Kennedy family.

John Steele Gordon explains how the crisis developed, going back to the Franklin Roosevelt administration of the 1930s, with a historical parallel from the 19th century:

. . . . Modern standards preclude government officials and members of Congress from the sort of speculation that was rife in the 1830’s. But today’s affinities between Congressmen and lobbyists, affinities fueled by the largess of political-action committees, have produced many of the same consequences.

Consider the savings-and-loan (S&L) debacle of the 1980’s. The crisis, which erupted only two decades ago but seems all but forgotten, was almost entirely the result of a failure of government to regulate effectively. And that was by design. Members of Congress put the protection of their political friends ahead of the interests of the financial system as a whole.. . . .Why was the integrity of the banking system not the first priority? Part of the reason lay in the highly fragmented nature of the federal regulatory bureaucracy. A host of agencies—including the Comptroller of the Currency, the Federal Reserve, the FDIC and the FSLIC, state banking authorities, and the Federal Home Loan Bank Board (FHLBB)—oversaw the various forms of banks. Each of these agencies was more dedicated to protecting its own turf than to protecting the banking system as a whole.. . . .For good measure, the Bank Board changed its accounting rules, allowing the thrifts to show handsome profits when they were, in fact, going bust. It was a case of regulators authorizing the banks they regulated to cook the books. Far worse, the rule that only locals could own an S&L was eliminated. Now anyone could buy a thrift. High-rollers began to move in, delighted to be able to assume the honorific title of “banker.”. . . .A mortgage used to stay on the books of the issuing bank until it was paid off, often twenty or thirty years later. This greatly limited the number of mortgages a bank could initiate. In 1938, as part of the New Deal, the federal government established the Federal National Mortgage Association, nicknamed Fannie Mae, to help provide liquidity to the mortgage market.Fannie Mae purchased mortgages from initiating banks and either held them in its own portfolio or packaged them as mortgage-backed securities to sell to investors. By taking these mortgages off the books of the issuing banks . . . .

. . . in 1995, regulations adopted by the Clinton administration took the Community Reinvestment Act to a new level. Instead of forbidding banks to discriminate against blacks and black neighborhoods, the new regulations positively forced banks to seek out such customers and areas. Without saying so, the revised law established quotas for loans to specific neighborhoods, specific income classes, and specific races. It also encouraged community groups to monitor compliance and allowed them to receive fees for marketing loans to target groups.

. . . Fannie and Freddie were now permitted to invest up to 40 times their capital in mortgages; banks, by contrast, were limited to only ten times their capital. Put briefly, in order to increase the number of mortgages Fannie and Freddie could underwrite, the federal government allowed them to become grossly undercapitalized—that is, grossly to reduce their one source of insurance against failure. The risk of a mammoth failure was then greatly augmented by the sheer number of mortgages given out in the country.. . . .That was bad enough; then came politics to make it much worse. Fannie and Freddie quickly evolved into two of the largest financial institutions on the planet, with assets and liabilities in the trillions. But unlike other large, profit-seeking financial institutions, they were headquartered in Washington, D.C., and were political to their fingertips. Their management and boards tended to come from the political world, not the business world. And some were corrupt: the management of Fannie Mae manipulated the books in order to trigger executive bonuses worth tens of millions of dollars, and Freddie Mac was found in 2003 to have understated earnings by almost $5 billion.

Both companies, moreover, made generous political contributions, especially to those members of Congress who sat on oversight committees. Their charitable foundations could be counted on to kick in to causes that Congressmen and Senators deemed worthy. Many of the political contributions were illegal: in 2006, Freddie was fined $3.8 million—a record amount—for improper election activity.. . . .Since banks knew they could offload these sub-prime mortgages to Fannie and Freddie, they had no reason to be careful about issuing them. As for the firms that bought the mortgage-based securities issued by Fannie and Freddie, they thought they could rely on the government’s implicit guarantee. AIG, the world’s largest insurance firm, was happy to insure vast quantities of these securities against default; it must have seemed like insuring against the sun rising in the West.. . . . .Many people, especially liberal politicians, have blamed the disaster on the deregulation of the last 30 years. But they do so in order to avoid the blame’s falling where it should—squarely on their own shoulders. For the same politicians now loudly proclaiming that deregulation caused the problem are the ones who fought tooth and nail to prevent increased regulation of Fannie and Freddie—the source of so much political money, their mother’s milk. [John Steele Gordon, Commentary, November 2008]

The rest is history, as they say. Read more here. Obama and Hilary's people were deeply involved in creating the conditions that produced the crisis. Obama's supporters and appointees were deeply involved and made a profit out of the situation while times were good. Think of R Emanuel, Raines, J Johnson. Think of the large contributions that Obama got from these Fannie Mae and Freddie Mac, more money than most other members of Congress got.- - - - - - -NOTE: By "Obama's kind of folks" I am referring to Democratic Party politicians and bankers and businessmen connected to Obama's party. I don't blame poor people, black or otherwise, who received the subprime mortgages. These people lost their equity in their homes when they could no longer make mortgage payments and the houses were foreclosed, especially in cases where the interest rate had gone up. Further, it is a bank's responsibility to examine a borrower's credit worthiness, not the borrower's. When govt regulations ordering banks to avoid poor credit risks were removed, the banks recklessly gave out mortgage loans and bankers made big profits. Think of Obama's friends and associates named above, among others. Then came the crash. Thanks, BHO and friends.- - - - - -UPDATING 11-24-2008 Judith Klinghoffer argues that the steep rise in oil prices brought down the economy.Coming: More on Zbig's schemes, Obama's dishonesty, the "Left's" lies, Jews in Jerusalem, Hebron, archeology, propaganda analysis, peace follies, etc.

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